The RWN reflect the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected by Fitch. General government gross debt (GGGD) and public sector net debt are forecast by the OBR to peak in 2016-17 at 100.8% and 85.6% of GDP and only begin to decline in 2017-18. Fitch has previously stated that GGGD failing to stabilise below 100% of GDP and on a firm downward path towards 90% over the medium term would likely result in a downgrade of the UK’s sovereign ratings.

It could be only a matter of time before S&P or Fitch also deprives the country of its coveted top rating. Fitch, for its part, intends on concluding its review in April. While we generally don’t think that credit ratings matter too much anymore, a second downgrade could have an impact on the UK’s funding costs, because some institutional investors (e.g. pension funds) have to follow strict rules that force them to own certain amounts of the highest-rated debt. While one rating agency downgrades may not matter, a second might force them to sell UK government debt.

Then again, with 10-year bonds yielding 1.85%, it’s not like the UK government is actually having any trouble borrowing money cheaply right now. The real impact of even a second downgrade may be limited.